Credit Unions: How to Out-Perform in a Competitive Market

Gone are the days when not-for-profit financial institutions could succeed by just offering the most basic of services. Today, customer demand and other competitive pressures have caused credit unions to take stock of their practices of the past.

Going forward, they have to differentiate themselves by offering new products and services that are on par with, or surpass, those offered by their commercial counterparts. Fortunately, many credit unions are rising to the challenge.

By taking actions that include leveraging new technologies, delving into new offerings like foreign exchange and capitalizing on the opportunities uncovered by new regulations, to name but a few, credit unions are proving to be feisty competitors in the brave new world of retail banking.

Ideas about how credit unions can stay ahead of the curve are as follows:

Seek Out Technological Advancements

Technology has radically changed the way in which we communicate and execute in business. Credit unions can sometimes struggle to keep up with larger banks because they don’t have the bandwidth and manpower to provide the advantages of their more significant counterparts. With that said, technological advancements are quickly narrowing that gap.

Community financial institutions should take advantage of technological advances that will allow them to improve their workflow, enhance their back-end operations and improve their services. Four key technology areas that credit unions should focus on include:

Outsourcing Key Functions

Outsourcing key functions such as SWIFT operations gives credit unions the ability to take advantage of proven technologies and the research and development efforts of solution providers to increase their own efficiency and enhance their bottom lines.

ACH Services

By providing ACH services, credit unions give their clients the ability to perform such vital functions as collecting payments from customers, making payments to vendors and depositing payroll funds into employee accounts online.

Automated Notifications

Automated notifications give credit unions the ability to use a variety of media (for example email, automated voice messaging and text messaging) to notify customers about general account activity information, as well as aberrations.

Automated OFAC Look-Ups

Automating these processes allows credit unions to better comply with regulatory efforts and avoid fines and other punitive measures by automating the list-screening process for detecting and monitoring denied individuals and parties.

Deliver Greater Automation

In order to compete with the larger banks, credit unions should improve their level of automation. Those that have not remain painfully manual. This causes transactions to take more time to process and approve. These time-intensive procedures impose earlier transaction cut-off times. As an example, rather than having until the end of day for approval, customers must process their requests before 2 p.m. to guarantee their transactions are executed that day. Business can be lost as a result.

Credit unions are wise to offer greater automation and authorization to go directly to the customer. This creates a strong customer experience, eliminates re-entry errors, delivers straight-through processing and offers the customer the ability to take advantage of different payment options. Automation also frees up operational resources and thus allows credit unions to offer expanded hours of operation and, ultimately, to win new business.

Join the Foreign Exchange Evolution

Community financial institutions have been growing in popularity because of their ability to provide more competitive interest rates on savings accounts and loans.

Where credit unions are struggling to compete with larger banks is around wire products and their corresponding relationships such as foreign exchange transfers.

Currently, wiring money at most credit unions is a manual process that requires looking up the exchange rate, processing the wire through corresponding banks and agreeing on separate fees, settlement dates and so on.

Credit unions can stand out by offering a competitive interface that allows customers to go directly to the system, to fill out the information and to complete the authorization form with the exchange rate details already uploaded. This allows the user to get the rate then and there, see the full disclosure of fees, eliminate processing time and cut out the middle-man.

Embrace the Business Opportunity in Regulation

Regulations present a number of opportunities to gain business advantage. As an example, Section 1073 of Dodd-Frank seeks to protect and inform consumers by providing greater transparency and predictability relating to the cost and delivery of international payments.

While compliance can be a hurdle for any financial institution, especially credit unions, they can address the requirements of Dodd-Frank for cross-border consumer payments head-on and further differentiate themselves in so doing. They can do this by providing direct routing cross-border payments via domestic channels.

Prevent Fraud

Lastly, but most importantly, credit unions often wonder how to best balance implementing stringent security controls while developing a seamless user experience. Part of the answer lies in creating customer-centric fraud management practices. These focus first on detection and then on examining transactions within the broader context of customer behavior. The process should also ensure operational infrastructure to make it easy to alert and contact customers in the instance of fraud.

In order to be both user-friendly while rigorously in control of fraud, credit unions need to:

Invest in Analytics – Just as the consumer credit card industry has invested in analytics to detect and prevent fraudulent transactions, credit unions must make the same kinds of investments to stem the tide and make sure their bank and corporates are not soft targets.

Catch it in Real-Time – Have IT systems in place that can process and stop transactions in real-time to prevent fraud attempts while still allowing the customer to execute legitimate transactions, efficiently balancing business fraud and customer impact.

Maximize Detection Rates, Both True and False – Leverage behavioral profiling to reduce positive transactions being classified as false and to provide a high level of early fraudulent detection.

The challenges facing credit unions are real, and yet the opportunities to turn these challenges into opportunities are abundant. Those credit unions that take proactive steps to stay ahead of the curve can position themselves to win, even with less bandwidth and manpower.

The moral of the story is that the little guys don’t necessarily finish last – especially if the little guy in question taps into new technologies, new products and new services to help them to stand head and shoulders above the crowd.

Tony Salamone, is senior vice president of U.S. payments project management at Fundtech in Jersey City, N.J.